Hindustan Unilever (NSE:HINDUNILVR) Has Announced That It Will Be Increasing Its Dividend To ₹22.00

Hindustan Unilever Limited (NSE:HINDUNILVR) will increase its dividend from last year's comparable payment on the 26th of July to ₹22.00. The payment will take the dividend yield to 1.5%, which is in line with the average for the industry.

Check out our latest analysis for Hindustan Unilever

Hindustan Unilever's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. At the time of the last dividend payment, Hindustan Unilever was paying out a very large proportion of what it was earning and 103% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

The next year is set to see EPS grow by 43.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 70%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Hindustan Unilever Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of ₹9.00 in 2013 to the most recent total annual payment of ₹39.00. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Hindustan Unilever's Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Hindustan Unilever has grown earnings per share at 12% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Hindustan Unilever (1 makes us a bit uncomfortable!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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